Family offices continue to hold an abundance of capital, despite the disruption caused by COVID-19 over the last 12 months, with many looking for more strategic investment opportunities, and applying a fast-paced investment review and selection process. The establishment of multi-family offices enables access to more options and deal flows that may have otherwise been restricted to institutional investors reducing reliance on personal business interests, real estate, superannuation and other traditional investments such as passive and active funds to maintain and generate wealth.
With an eye on the future, this will increasingly become an important component for wealth transition and meeting the many challenges associated with generational wealth transfer.
The power of the multi-family office – more capital, more choice
Australia is slowly capitalising on the USA and European multi-family office trend. While many hold onto the notion of privacy often associated with operating a single-family office with long standing advisory relationships, many more are understanding the benefits that come with sharing their experiences and knowledge amongst like-minded individuals, and the resulting opportunities that open up for them, such as joining either on a portfolio or investment-by-investment basis.
Joining a multi-family office for all or part of your portfolio or joining a consortium for certain investments satisfies those in the family group, often younger generations, with a higher risk appetite. When this is addressed as part of a family office’s succession planning, it becomes an important step in ensuring strong frameworks for continuing what has worked for the family office while providing opportunities for the next generation to capitalise on new ways of investing.
Multi-family offices are not new
With the fiscally stable baby boomer generation retiring, Australia’s biggest wealth transfer in history is occurring. It will continue over the next few decades, with an estimated $3 trillion passing to the next generation via wills and trusts. Unless this is well managed, this transfer of wealth is in jeopardy, threatening a family’s ability to continue growing and ensuring intergenerational wealth.
Multifamily offices allow the next generation to create relationships with like-minded individuals, leverage experience, share staff and have access to better suited advisors. The multi-family office concept is not a new one, though it only represents just under 20 per cent of family office structures globally. According to the UBS and Campden Research’s 2019 Global Family Office Report, 11 per cent of family offices are private multi-family offices, and 9.2 per cent of family offices globally are commercial multi-family offices.
Put the right frameworks and structures in place to facilitate investment diversification
Just as considering multi-family investing in your succession planning can be a good way to address a family’s intergenerational wealth goals, family offices should consider what frameworks and structures they should have in place to find and fund new investments. These frameworks and structures may include processes to source and vet deals, connect with other family offices who could become part of a consortium, and report and analyse how new investments align and perform with the family’s long-term wealth-building strategy.
Establishing strong decision-making frameworks before embarking on a family office deal, either as a one-off investment or as a portfolio of investments, will ensure each person within the group understands what decisions need to be made and when. It eliminates ambiguity and the risk that the decision to diversify into other investments is not short-lived but instead provides long-term financial, commercial, and social value to the family. Multi-family offices are also generally better able to attract and retain experienced staff, have improved infrastructure and technology in place, and can be more agile and streamlined than a single-family office.
Do not miss the opportunity to diversify and pool wealth
Family offices that can work together to combine their wealth and other resources to gain exposure to institutional level investments stand to enjoy the benefits of collaborating to maximise the family’s wealth and legacy building. Further, the opportunity to work directly with those businesses that multi-family offices invest in addresses other challenges prominent business owners and leaders face, such as professional loneliness, attracting and retaining top talent and having strong technology infrastructure and systems.